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most company valuations are significantly different from the statements of the historical society, tempered by other factors such as: location, brand, management and so on. In truth and in fact, the dealership, the balance is less than half of the necessary information to properly value an automobile dealer. The balance sheet is but a starting point from which a number of factors must be added and subtracted to determine the true value of the assets.

Evaluation of the new car dealer has to do with the prediction of future earnings and prospects on the basis of the "dynamism" of the dealer to be evaluated and the automotive industry.

The Internal Revenue Service acknowledges that the ratings for more than Financial Statements: "The referees have to judge the degree of risk associated with the company's business operations, the warehouses, but the verdict must be viewed in conjunction with all other factors the value "." Revenue Ruling 59-60, Section 3.03.

DEFINITION OF MARKET VALUE

The definition of market value after the American Institute of Real Estate Committee of Experts "Dictionary of Real Estate Appraisal, is:" The most probable price in cash, the conditions, the cash or other precisely revealed terms for which the assessment of property sale in a competitive market under all conditions requisite to fair sale, the buyer and seller are prudent, knowledgeable, and self-interest, and assuming that neither under duress. "American Institute of Real Estate Committee of Experts, The Dictionary of Real Estate Appraisal. (Chicago: American Institute of Real Estate Expert Committee, 1984), 194 195.

The revenue ruling 59-60, the Internal Revenue Service defines "market value" as follows: "... The price at which the firm is in other hands would go on between a buyer and a willing seller, if not under duress , buy this and not under duress to sell, both parties with adequate knowledge and relevant facts. "

The purpose of the revenue ruling 59-60, it is, and the review in general the approach, methods and factors used in the assessment of shares of the capital stock of closely held businesses. The methods used in the revenue ruling for the valuation of companies on the stock market quotations are either unavailable or are of such shortages, that they do not reflect the market.

The ruling goes on to state that no fixed formula can be developed to determine the market value of closely held shares and that the value depends on such considerations as:

(a) The nature of the work and history of the company since its founding.

(b) The economic outlook in general and the state and prospects of the industry in particular.

(c) The carrying value of the stock and the company's financial condition.

(d) The earning power of the company.

(e) The dividend paying capacity. The ability to pay dividends is often more important than a company, the history of the distribution of funds to shareholders, particularly when valuing controlling interests.

(f) Regardless of whether the business or goodwill or other intangible value.

(g) Sale of shares and the size of the block of shares to be assessed.

(h) The market price of the shares of companies operating in the same or a similar industry, their stocks actively in a free and open market, either on a stock exchange or over-the-counter. In relation to a single dealer selling the best comparable is the amount of the public or companies paid for the purchase or sale of a similar dealership contract, not what the public company's shares or more result per se, that is to the Exchange.

In practice, at the date of arrival at the market value of a new car, different formulas were used:

1. Return on Investment (or outcome evaluation), the formula: The value of a company at a particular buyer on the basis of a return-on-investment analysis. This value varies from buyer to buyer after the buyer is the investment criterion, and it can not be the market value. The National Automobile Dealers Association (NADA) refers to this value as an "investment value." A guide for evaluating a car dealership Dealer, NADA in June 1995, revised July 2000.

The activation is determined by the stability of the result of traders and the risks in the automobile business at the time of sale, investment, or evaluation. This method is very subjective, such as the activation is based on the evaluators, in particular, the perception of the risks of the company, therefore, the lower the expert takes the risk, the lower the activation and the higher is the price that he expected a potential buyer to pay for the company.

In short, the activation is the expert's opinion at a rate of return on investment, which motivate a potential buyer to purchase the dealer. Considerations are in the revenue ruling 59-60, as well as available return on alternative investments.

2. Adjusted Net Worth formula: net value of the company, the valuation of assets, in the daily operations of a company is assumed that the user or the buyer will continue the use of the property. To this "net worth" value is the blue sky or goodwill, if any. The "Adjusted Net Worth formula" is the most common method used in buying and selling a new car.

3. Orderly liquidation formula. In this method, the assets as if all of them had to sell - not to a "fire sale", "but in an orderly manner and without temporal restrictions. Normally, if the trader is profitable, a value yet to be goodwill.

4. Forced liquidation. The lowest of all values, forced resolution means that all of the assets must be sold at a forced sale, like an auction, the creditor through the sale or order of a bankruptcy court. A bankruptcy procedure in relation to a new car dealer almost never brings goodwill. This could be the best formula, if the dealer has no lease (or just a short-term nor to its lease) and can not, as a practical matter, relocate.

5. The result of the formula. The profit formula is basically the result of the transaction and multiplying by an appropriate capitalization rate. The trick here is the definition of "profit". In determining 'earnings' prospects could purchase any combination of the following characteristics:

(a) current earnings

(b) average earnings - add the last five years and by 5

(c) weighted average of income - usually a weight inversely with the current year, multiplied by five, the last year of four, the year before the last three or four years from two to five years from one, then it together and dividing by 15

(d) Cash flow - net income plus agreed as add-back depreciation and amortization, LIFO, personal spending on bonuses, and such

(e) the forecasted results - in expected future profits are discounted to present value.

6. Fair value. NADA also on a third value in addition to the "market value" Investment Value ", which it describes as" fair value ". NADA describes "fair value" as "... Especially when a minority shareholder objects to a proposed sale of the company in assessing liquidating damages." And defines it as: "The value of the shares of other shareholders immediately before the transaction, on which the dissenter objects, excluding any recognition or depreciation in anticipation of the transaction and without reference to either a minority or non-marketability discount. "

The NADA guide says: It is not customary for auto dealers in order in this specific evaluation standard. This author has never, never seen before, this value with respect to the valuation of automobile dealerships.

As you can see in this report, when discussing this author reviews NADA does not describe what constitutes a "fair value".

7. The Greater Fool Theory. The National Automobile Dealers Association publication (A guide for evaluating a car dealership Dealer, NADA June 1995), bemuses, in part: "A rule of thumb is true, as the" greater fool theory. "It is not" evaluation of the theory, but. "(In the section" Assessment of a car dealer: Update 2004 "NADA dropped the reference to" fool "and simply declared that the theory" ... only rarely on the basis or a sound economic evaluation of the theory, "but advises sellers to" Go for it, and maybe someone stupid enough to pay [it]. "

The considerations for the valuation of new car dealerships are more complex than that for the evaluation of most other companies. Dynamics, such as the special requirements of automotive manufacturers and dealers can be the amount of money that can be paid for a dealer, regardless of what perspective buyers can pay for the store.

Therefore, the value of a new car dealer will vary depending on the needs and opportunities for buyers and dealers so that the same could have two different values for two different buyers, and both values would be correct.

Thus, our evaluation of the dealer should issue in the context and boundaries of the facts and the history of the new car sales of the division here.

Although the terms "" Blue Sky "and" goodwill "is sometimes used, in our experience, are two separate elements.

"" Goodwill "reflects the intangible value of the hard assets (net assets) of a going concern if the company profitable. It has to do with the operation of the company. It reflects the fact, for example, that the date on which the buyer closes on the purchase of a dealership, customers are lined up at the service drive, the dealer's phone number is already in the Yellow Pages, existing customers have relations with the employees of the store, the back-end-(and service) will have a gross profit, and a host of other benefits that do not exist with the opening of a new number. "

"" Blue Sky ", on the other hand, the intangible value of the business opportunity itself. It is the value, for example, to a certain franchise with some potential for retail or a business in certain place or the fact that a specific franchise location, or an adjunct to other franchise locations, or by a potential buyer or the fact that there are few competitors in the field, or the fact that the franchise is ideal for a certain location.

Examples of pure "blue sky" would be the purchase of a Letter of Intent (LOI), a non-existent until now dealership or the difference between a Subaru franchise in the snow country, compared to the desert, or the difference between a domestic franchise in Flint , Michigan against Marin, California, or vice versa, the difference in the value of a Nissan business in Marin, California against Flint Michigan.

In short, a "blue sky" it or not, whether the company is profitable, or "dormant," as with a LOI. If a business is profitable, but the distinction remains, although the term is fuzzy, because the dealers in general, the terms "" Blue Sky "and" goodwill "as a synonym.

In the evaluation of a car dealer, it is in:

• Use of the American Institute of Real Estate Committee of Experts "Dictionary of Real Estate Valuation and the IRS revenue ruling 59-60 definition of" market value "and we are of the adjusted net worth formula with" Market Value - Used continuation ", if valuation of assets;

• Use "" Blue Sky "and" goodwill "synonymously, because the dealer is profitable;

• assume an "asset sale" and (1) Add the assets of the company, a buyer usually buy it on the blue sky and goodwill values to determine a sales value, (2) and then drag from / to this value the assets and liabilities, which remain with the seller.

• consider the specific requirements of the industry in relation to the property and the activation of a new car;

• value of blue sky / goodwill on the basis of what the seller could reasonably expect a selling price if the seller of the interest actually been sold by the American Institute of Real Estate Committee of Experts "Dictionary of Real Estate Appraisal definitions of" market value "but with reference to what the factory and a bank would require the sale and issuance of a flooring line.

• consider, where appropriate, a minority discount

• Land and buildings are separated.

See also: NADA stated that in evaluating a car dealer, "market value" is "market value", unless otherwise indicated. NADA refers to this value than for the calculation of taxes, divorce, Employee Stock Ownership Plan (ESOP) and the shareholder agreements. See: National Automobile Dealers Association (NADA) publication: A guide for evaluating a car dealership dealer, NADA in June 1995 and revised in July 2000.

NEW CAR franchise can not be sold

The term "sale" of a new car franchise is misleading, because a new car franchise dealers can not be sold. Each and every factory and dealer issues a contract as a "Dealer Sales and Service Agreement", which is between the dealer and the factory and the franchise agreement expressly can not be sold.

What actually happens in the "sale" of the automobile dealer is that the parties to a contract of sale in relation to merchant assets or shares and the agreement to the factory settings for the approval of the factory a number of approvals before the sale can be executed and the buyer than the seller of the successor dealer. These permits include:

(1) the nature of the buyer;

(2) the operator of the experience;

(3), the local distributor, in view of the current demographic trends;

(4) the adequacy of the institution, in view of the current planning belt;

(5), the activation of the dealer;

(6), dealer profitability as planned profitable businesses and

(7) of the investor financing sources

Consequently, the fact that a potential buyer has "" The highest bid "does not mean that a merchant can (1) indicates that the prospect, or (2) that the dealer the value offered. A new car dealer may only be sold to a candidate, all of the skills of producers and traders with regard to capital, experience and expected profitability. Although many courts, especially bankruptcy courts have tried to ignore this rule and the value of the dealer on the value, the him by the highest bidder, the fact that the highest bid does not specify the value of a new car has been confirmed by state and federal appellate courts in every jurisdiction in the United States, including bankruptcy court.

See In re Pioneer Ford Sales, Inc., 729 F.2d 27 (1984), where the Bankruptcy Court, 26 BR 116, had authorized the transfer, the Pioneer Pioneer to the major secured creditors, to Toyota Village. The Court of Appeals reversed the bankruptcy court and the district court found that Ford was not the rejection is inappropriate. See also: Ferrari vs. Simms, U.S. Ninth Circuit Court of Appeals, Case No. 9916059, April 27, 2000, in: The U.S. Bankruptcy Court approved the sale of a bankrupt Ferrari dealer and Court of Appeals reversed stating: Producers "... are not inappropriate for their approval."

Thomas M. Pitegoff, in his article: Franchise Relationship Laws: A Minefield for Franchisors, THE Business Lawyer, vol. 45, No. 1, November 1989, states on page 289th "" A franchisor at common law and under the Sherman Act may also hold back, consent to a transfer on the basis that the price at which the franchisee is selling the franchise is so high that they threaten the financial stability of companies and hinders the acquirer is in a position to succeed.

It is clear that the franchisor has an interest in ensuring that the buyer have a chance to realize a reasonable return on his investment. "" See: In re Beverage International, Ltd., [1986-1987 Transfer Binder] Bus. Franchise Guide (CCH) Ð Ð, 8636 (Bankr. D. Mass. 1986); Walner v. Baskin-Robbins, 514 F. Supp. 1029 (D. Tex. 1981), Hawkins v. Holiday Inns, 634 F.2d 342 (6. Cir. 1980), Cert. denied, 451 U.S. 987 (1981); Kestenbaum v. Falstaff Brewing Corp., 514 F.2d 690 (5th Cir. 1975), cert denied, 424 U.S. 943 (1976); Hanigan v. Wheeler, 504 P.2d 972 (Ariz 1972).

Real Estate and FACILITIES

Insofar as the activity of a new car dealers are concerned, a factory / dealer is not the "sale" of the dealers, without regard for: (1) the state of the physical plant, (2) the rent factor, and (3) the lease. Moreover, the value of property and equipment to a manufacturer and a new car dealers do not necessarily relate to the market value of land and buildings in the market. See: John Pico "purchase and sale of motor vehicle dealers, the national legal systems Publishing Company (1986). There are "per car" rental factor percentage of sales and formulas used to determine if a dealer could even survive Service proposed a rent factor.

In addition, unless there are extenuating circumstances (such as an expected step in the situation), a manufacturer and distributor of the rule will not approve a sale without a candidate securing a minimum of five years lease for the dealer to a "approved" are.

In some instance, potential buyers have a problem with the shift could be that the government a mileage allowance law.

Current state of the ECONOMY TRADE AGREEMENT

There are three essential factors to consider when it comes to "the" economy ": (1) The health of the national economy, (2) The health of the local economy, and (3) The fiscal health of the franchise and its dealers.

IMPORTANCE OF LOCATION

The strategic importance of the situation in the assessment of a dealership, especially those dealers who can not be overstated. Michelle Krebs and Donna Harris, staff reporter for Automotive News, wrote an article on 21st January 2002, although the importance of the local distributor of that situation, always an important role, has more in the assessment of a dealer. See also: Retailer Magazine, June 2000, "Defining Blue Sky"; Beers and Cutler, (beersandcutler.com), "Auto Dealers Report", Issue 2, 2001; and MerillLynch, in his 19th April 2004 report on the car dealer wrote:

The condition of the FACILITY

See Donna Harris Automotive News Article January 27, 2003, entitled: "Showroom renewal" that it reads: "More than ever, decision makers want dealers to remodel their stores. "She cited Porreco Lou, president of five dealers in Pennsylvania and Florida, is at the head of the district in sales and customer satisfaction:" If there is a purchase-sale agreement and a new dealer or a dealer, a new franchise or a dealer wants to relocate the plant makes it dependent Remodeling "."

See also: Michael Bradford is 4 February 2004 Automotive News article with the headline: "The traders react - redesign, whose investigative reporting on the same result.

ONE MAN SHOWS

Revenue Ruling 59-60, Section 4.02 (b) states: "A reasonable assessment of a closely-held shares must be... The loss of the manager of a so-called" one-man company can be a depressing effect on the value of the stock. . . In assessing the existence of this type of business, ie the impact of the loss of managers on the future expectation of the company, and the lack of management capabilities are the result of the relevant factors into account. "

POTENTIAL BUYERS

Public Companies

At this time, public companies are no longer the darlings of the industry and are normally not more spending enormous sums Remodeling dealers who they once were, and many manufacturers and dealers are from the public rejection of offers to buy their dealers. For example, in 2005 the Ford Motor Company denied the admission of a public company $ 87 million offer for the Dealer Group. The rejection was confirmed by the California New Car Dealer Board and the state courts. In 2005 Mercedes-Benz blocked other public companies from buying one of their dealers to exercise their first refusal. During the same period, Ford Motor Company bought a public company of Ford dealers and turned it into a company store.

In addition, manufacturers and distributors have limited public companies to a certain number of franchises you can (for example, only a Lexus to a total of five Lexus dealers in the entire United States), and they have the rules for cessation of business owners from merchants in the same market.

COMPARABLE SALES DEALER CONTRACT

Comparable sales are to the extent that the shops sell really "comparable" to the dealers to be evaluated, in terms of potential, establishment, location, branding, demographics, and so on. Since no two shops are truly identical, the blue sky for any "comparable" store would have to be adapted for each of the factors mentioned in this article, due to a "comparable" value.

John Pico has a Doctorate in Law and is Vice President of Automotive Advisors. He has more than 1,000 dealer transactions and published the first books in the copyrighted Library of Congress for the purchase and sale of automotive dealers. You can use his biography and other information, sources and references to http://www.automotiveadvisors.com/johnpico.asp
































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